Canada's push to build its first major conduit for shipping oil to Asia took a step forward last week, but the government's fractious relations with the country's aboriginal First Nations still loom as a formidable obstacle to the project.

Native groups in British Columbia are promising legal action and civil unrest after regulators on Thursday gave their blessing to Enbridge Inc's C$7.9 billion ($7.4 billion) Northern Gateway pipeline. That could scupper the project outright, or at least delay construction of the 1,177-kilometer (730-mile) line for years.

"This is not the end," said Ann Marie Sam, a councillor with the Nak'azdli First Nation, a member of the Yinka Dene Alliance, referring to the regulatory panel's recommendation. "The message that we want to send out from the Yinka Dene is that ... the Enbridge Northern Gateway pipeline is banned from our territories."

Northern Gateway would take 525,000 barrels per day from Alberta's oil sands, the world's third-largest crude reserve, to a deepwater port near Kitimat on British Columbia's northern Pacific coast. From there, tankers would take the oil to China and other Asian markets that are willing to pay a premium for it.

While that is just a fraction of the 2.5 million barrels that flow each day to Canada's largest customer, the United States, Ottawa sees diversification as crucial for the industry's long-term health, and ultimately to the country's overall prosperity.

The favorable recommendation by the Joint Review Panel of energy and environment regulators puts the onus on Canada's Conservative government to decide if it will approve the project and allow construction to begin.

Natural Resources Minister Joe Oliver has promised to consult with First Nations groups over the next 180 days, a legal requirement, but the decision is expected to be an easy one for his government. It has enthusiastically backed the development of additional export pipelines to accommodate rising oil sands production and boost depressed Canadian oil prices. Finding an alternative to the U.S. market is crucial.

But the government's desire to see Canadian oil shipped to Asia clashes with the wishes of many of British Columbia's aboriginal communities, who fear a spill will damage the province's salmon fishery and mar its wild landscapes.

While Enbridge has promised it will mitigate the risk of a major spill by building the world's safest oil pipeline, many aboriginals feel the company still has not adequately described how it would clean up in the event of a spill.

"You can mitigate all you want; it's actually remediation that concerns us," said Ellis Ross, chief councillor of the Haisla Nation, at the pipeline's terminus. "You cannot remediate an oil spill if it happens in a salt water environment - we've already seen what happened up in Prince William Sound."

Prince William Sound in Alaska was where the Exxon Valdez tanker hit an undersea reef in 1989, spilling about 260,000 barrels of oil into the sea.

The Haisla and other aboriginal communities across the province are now weighing their legal options. Challenges are likely to center on whether the government adequately consults with them and takes their concerns into account.

"We have dozens of First Nations along the length of the pipeline, and then the pipeline is, I think, agreed by most people to have pretty far-reaching consequences, so the duty should be fairly onerous," said Gordon Christie, an associate professor of law and First Nations law expert at the University of British Columbia.

According to Christie, the government is unlikely to meet the legal bar of "meaningful consultation" within the six months it has to make a decision.

"Meaningful consultation is not supposed to be just having meetings where you listen to people, nod your head, and just say 'Yes, yes, yes,' and then go out and decide to build a pipeline," he said.

In its decision, the panel acknowledged the aboriginal communities along the route will face disruptions to their traditional lifestyles but it sees the effects as temporary, even in the case of a large oil spill.

POOR RELATIONS

Canada has long had poor relations with its million-strong aboriginal population, many of whom live in communities beset with poverty, poor housing and high unemployment.

A report commissioned by the federal government earlier this year found Ottawa has not had a constructive dialogue with aboriginal communities about its desire to spur resource development.

The decision by regulators, which came despite considerable effort by participating First Nations to sway the panel against the project, could also have negative implications on other planned resource developments.

"It's a bit of a ground-shaking outcome. I think a lot of aboriginal people may feel like the Canadian legal system, as a whole, has failed them," said Merle Alexander, an aboriginal law specialist with Gowlings law firm in Vancouver.

"It's not just Northern Gateway," he added. "That type of distrust can easily make its way to other proponents. That's the greatest danger of an outcome like this - that it creates a movement against other projects."

Northern Gateway will enable Alberta's producers to reach high-paying markets in Asia as well as California, sidestepping the over-supplied U.S. Midwest, where Canadian crude sells at steep discounts to benchmark prices because of constraints on transporting it.

The near-certain litigation that will follow any favorable government ruling is likely to mean that the project will be tied up in legal battles for anywhere from two to five years.

"By no means are we there, but it's a good first step," said David Noseworthy, analyst at CIBC World Markets. "This is just the beginning of this process ... we are just so far from the finish line." ($1 = 1.0635 Canadian dollars)Source: Reuters

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